4000 - Advisory Opinions
Insurance Coverage Afforded a Cemetery Maintenance Fund and a Perpetual Care Fund
June 3, 1991
J. William Via, Jr., Counsel
This is in response to your letter of May 8 inquiring about deposit insurance.
You describe a "permanent maintenance fund", declared to be a trust fund under state law, that is required to be used for cemetery maintenance by a cemetery corporation, which puts into the fund a certain percentage of the gross proceeds from its sales of cemetery lots or plots. The fund is held by an insured depository institution in a "custodial capacity" for the cemetery corporation. You ask, in essence, whether in these circumstances "the fund is . . . [one] which in case of failure and liquidation of the bank is to be set aside and earmarked and will not be subject to the $100,000 insurance limitation?" The answer is no, assuming that the fund consists of money (or its equivalent). The term "deposit" is defined by the FDI Act to include "trust funds" (as defined in the Act) "received or held by . . . [a depository institution], whether held in the trust department or held or deposited in any other department. . . ." See 12 U.S.C. § 1813(l). The term "trust funds" means funds held by a depository institution in a fiduciary capacity, including funds held as trustee or agent. See 12 U.S.C. § 1813(p). If the "permanent maintenance fund'' money were used to purchase assets (other than deposit obligations of the custodial institution), such as municipal bonds or U.S. Treasury obligations, for example, and the custodial institution failed, then the cemetery corporation would be entitled to receive these assets (assuming, of course, that ownership could be established) in due course, without regard to deposit insurance limitations.
You also describe a second fund, a perpetual care fund, which consists of money paid under agreements between cemetery lot owners (or estates) and the cemetery to provide for perpetual lot care, and you ask whether a deposit comprised of such money is eligible for "pass-through" deposit insurance. Based on your brief description, the funds that comprise the deposit in such case appear to be payments made for the performance of a contractual obligation and to be funds with respect to which the payor has no ownership interest and bears no risk of loss. The FDIC staff has opined that, in arrangements of this type, the payor retains the requisite ownership interest for "pass-through" insurance only if the payor is unilaterally entitled to the return of the money paid at anytime before the company furnishes the services or merchandise contemplated by the agreement. Enclosed, for your information, are copies of three staff opinions that discuss the subject in some detail.